If you own a home and have a mortgage, then you are bound to have some equity, especially if you have been paying off this mortgage for a few years or more. With this equity, you can use it for any number of projects: remodeling your kitchen, adding rooms to your home, paying for college, and paying off debt are just some of the many things people use their equity for.
If you want to borrow money against the equity on your home, this is called a home equity loan. Home equity is fast becoming one of the most popular ways for people to borrow as much as $100,000 and still be able to deduct the interest they have on a loan when filing one’s taxes. This makes funding home improvement projects or paying for some major purchases or investments that much easier. The following includes some basic information about home equity so that you know a loan leveraged against this is right for you and for what you can use such a loan.
Types of Home Equity Loans
Basically, when it comes to home equity, you have two major types of loans from which you can choose: a fixed-rate loan and a line of credit loan. Each type of home equity loan is something that can range from five to 15 years in length and has varying amounts of interest rates attached to it. The interest you pay on a home equity loan will depend upon the credit rating a person has and the amount of equity he or she wants to borrow.
A fixed-rate loan is one that gives the user a single payment that is then paid back over a certain amount of time at a fixed or specific interest rate. This payment and the interest are the same for the duration of the loan. A home equity line of credit is one where the user is approved for a specific amount of money and can then withdraw the money when they need it with the use of a credit card or checks. The interest rate on such a line of credit varies.
Benefits Of Home Equity
A home equity loan is great because people can use it to increase the value of their home. At the end of the day, this means that the home will be worth more in the future and could prove to be a valuable asset and investment. Similarly, since a home equity loan is one where the interest can be deducted come tax time, it is a financially smart way to find everything from college tuition to a special anniversary trip or experience.